iTunes of textbook rental is vision of Illinois State U pair

Kasey Gandham, left, and Mike Shannon co-founded a business fraternity together at Illinois State University. And soon after, they had another plan. They'd reinvent the way textbooks are distributed, deploying the micro-transaction model used by iTunes and Redbox. For $5 or less on Packback, students can rent a digital textbook for a single day. For higher amounts, they can rent for a month or full semester.

The UpTake: Age didn't hold up this pair of young Illinois college grads from making the business connections and securing the investors required to launch a business transforming the way textbooks are distributed.

Youth might be a disadvantage for some entrepreneurs, unless they’re ridiculously ambitious, fearless and have a vision big enough to transform an industry.

That’s a good way to describe a pair of recent Illinois State University grads who are one month into a pilot at their alma mater to prove that iTunes-style digital textbook rentals are the next big thing in higher education.

AndPackback co-founders Kasey Gandham and Mike Shannon aren’t the only ones intrigued by the concept. Textbook publishers McGraw-Hill, Sage Publications and the Taylor & Francis Group are all on board for the test. Executives at Redbox and the Tribune Co., a 500 Startups investor and a former NBC Universal general manager have joined as mentors to the men. And $400,000 of a $500,000 seed round has been committed.

“We used the young card to our advantage,” Shannon says. “People were probably amused that a group of college students wanted to talk about a business plan, but it got us in the door and once we had the meeting, we could really display the value.”

Gandham and Shannon drew from personal experience as they brainstormed the business back in 2011. Gandham lamented renting six used books for $500 one semester, and then using only two of them regularly. And Shannon bought three used textbooks and struggled to borrow others from friends or classmates.

Research showed the cost of textbooks had grown four times inflation the last four years as publishers raised prices in reaction to fewer new textbook purchases. More students can purchase used books on campus or through Amazon, Chegg orBookRenter, and professors have increasingly incorporated free online material like TED Talks, YouTube videos, Blackboard, Wikipedia, news sources and Khan Academy.

“We took a look at the market and saw so many Band-Aids put on it with used books,” Gandham says. “Not only are students spending an atrocious amount on textbooks, but as they buy more used and rental books, publishers have to raise prices. It creates a vicious cycle of increasing costs.”

Packback would instead deploy a pay-per-use model and share the proceeds with the publishers. Students can pay $3 to $5 for one day and higher amounts for one month or a full semester. If a book is required more often than a student thought, previous rental fees could go toward a semester-long rental.

Not only would the service save students money, but it unchained professors from using just one expensive book. And it benefited publishers too. Collecting rental fees might counteract the impact of used book sales.

“It’s a total market solution,” Gandham says. “We’re making sure all the major stakeholders are happy.”

The founders had some experience in entrepreneurship. They co-founded a business fraternity on the Illinois State University campus and won its business plan competition in 2011. But the plan really came together when the men started traveling to Chicago networking events in 2012.

They also spent hours making cold calls to publishers and investors. When Brian Kibby, president of McGraw Hill’s higher education group, responded to a call and heard Packback’s 30-second pitch, he visited the men on campus and agreed to test out the service.

“It was a totally lucky cold call,” Gandham says. “We learned you have to be quick, concise and sell the message.”

In the months since, Packback has secured funding from many of Chicago’s most noteworthy startup investors and landed office space in the downtown startup community center, 1871. The company was also named the first entrepreneur-in-residence at Leo J. Shapiro & Associates, a quantitative research firm in the Windy City that is helping the men attach in-depth analysis to the pilot.

To promote the service on campus (and future ones), the men have created a free Book Swap Facebook app to help students buy and sell books to and from each other. It’s plastered with details of Packback.

About 1,200 students are eligible for the pilot (Their professors have agreed to promote it). It’s too soon to report how many are taking advantage of the service, Gandham says. But early surveys show that 75 percent of students on campus are interested in it.

The men hope to prove publishers can reclaim lost market share through Packback. And if all goes as planned, more campuses will have access to the site in January.

The men certainly have enough ambition, and connections, to have a shot. And age hasn't seemed to matter.

Laura Baverman is a business journalist newly relocated to Raleigh, North Carolina. Before her move, Laura spent nearly four years tracking Cincinnati's growing technology and startup scene for the Cincinnati Enquirer.

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